AerCap Holdings N.V. — FY 2012 Form 20-F
Reporting period: Year ended December 31, 2012; filed March 13, 2013. Although the request identifies 2012 Q4, this is an annual report and the supplied filing does not provide standalone fourth-quarter results. Financial figures below are in U.S. dollars unless stated otherwise.
Business context and financial position
AerCap is a global aircraft lessor and asset manager. At year-end it owned 212 aircraft and seven engines, managed 80 aircraft, and had 45 aircraft on order (including orders subject to cancellation or further commitment). Of its owned aircraft, 211 were leased; the fleet’s weighted average age was 5.1 years. The owned-aircraft utilization rate was 98.5% in 2012.
- Total assets were $8.58 billion, down 5.8% from $9.11 billion, primarily reflecting the sale of the ALS portfolio.
- Debt was $5.80 billion, down from $6.11 billion; debt equaled approximately 68% of total assets. Total equity was $2.12 billion, versus $2.28 billion.
- Cash and cash equivalents were $520.4 million and restricted cash was $279.8 million, for $800.2 million combined. The filing reports approximately $0.8 billion of committed undrawn facilities, many restricted to aircraft financing.
- Contracted minimum future operating-lease receipts were $5.02 billion. These are future contractual receipts, not a measure of immediately available liquidity.
Results, cash flow and changes versus 2011
| Metric | FY 2012 | FY 2011 | Change / context |
|---|---|---|---|
| Total revenue | $972.5 million | $1,093.9 million | Down 11.1% |
| Lease revenue | $997.1 million | $1,050.5 million | Down 5.1%; basic rents fell 2.0%, maintenance rents and end-of-lease compensation fell 34.2% |
| Net gain (loss) on asset sales | $(46.4) million | $9.3 million | 2012 included a $59.9 million pretax loss on the ALS transaction |
| Income from continuing operations | $158.4 million | $225.5 million | Down 29.8% |
| Net income attributable to AerCap | $163.7 million | $172.2 million | Down 4.9%; 2011 included a $52.8 million loss from discontinued AeroTurbine operations |
| Basic and diluted EPS | $1.24 | $1.17 | Up from 2011; weighted-average shares declined to 131.5 million from 146.6 million |
| Adjusted net income | $258.0 million | $303.1 million | Non-GAAP; excludes specified non-cash and unusual items |
| Net spread | $684.2 million | $718.1 million | Non-GAAP measure: basic rents less interest expense adjusted for specified items |
| Net cash from operating activities | $644.4 million | $622.2 million | Up 3.6% |
| Net cash used in investing activities | $(358.0) million | $(568.5) million | Lower cash use, mainly reflecting ALS and aircraft sale proceeds |
| Net cash used in financing activities | $(175.3) million | $(53.2) million | Higher use mainly due to share repurchases |
Interest expense was $286.0 million, down 2.2%; the average cost of debt excluding specified non-recurring and mark-to-market items rose to 4.1% from 3.7%. Leasing expenses rose to $72.1 million from $58.4 million, including $41.2 million related to airline defaults and restructurings. Asset impairment was $12.6 million, compared with $15.6 million. No conventional operating margin is clearly presented in the supplied filing text.
Material events, outlook and risks
- ALS divestiture: AerCap sold its equity interest in the securitization portfolio, which comprised 50 aircraft with approximately $1.0 billion of net book value and $0.5 billion of debt before the sale. It recorded a $54.6 million after-tax loss. Management estimated approximately $380 million of cash generation from the transaction, including forecast servicing fees and contingent receipts and net of specified costs and coupon payments; this is an estimate, not a guaranteed amount.
- Capital allocation and funding: AerCap issued $300 million of 6.375% senior unsecured notes due 2017 and established a $285 million unsecured revolving facility. It repurchased and cancelled 26.5 million shares for $320 million in 2012, at an average $12.06 per share. Aircraft purchases and deliveries require substantial funding: reported contractual purchase obligations totaled $1.33 billion, with $721.2 million due in less than one year.
- Near-term lease expirations: Leases representing roughly one-quarter of 2012 lease revenue were scheduled to expire through 2015. The filing gives slightly different totals in different sections (24.4% and 24.8%); its lease-expiration table shows 7.99% for 2013, 7.01% for 2014 and 9.38% for 2015.
- Defaults and aircraft values: Five lessees covering nine aircraft defaulted during 2012; lost rent during off-lease periods, impairments and related technical costs totaled $43.6 million. Management expects further restructurings or repossessions may occur. Older, less fuel-efficient aircraft face weaker demand, and further deterioration could trigger additional impairments.
- Market and financing exposure: Key risks include airline financial distress, fuel prices, regional economic and political conditions, aircraft oversupply and falling lease rates or residual values. Europe accounted for 39% and Asia/Pacific/Russia for 36% of 2012 lease revenue; 49.6% of aircraft by net book value were leased to airlines in emerging markets. A 1 percentage-point rise in interest rates was estimated to increase annual interest expense by $31.1 million, partly offset by higher interest and lease revenue.
- Contingencies: AerCap disclosed longstanding VASP litigation and Transbrasil litigation in Brazil. Transbrasil asserted an approximately $210 million penalty and damages calculation against all defendants; AerCap disputed the claim and reported no provision, citing counsel’s advice. AerCap also reported a $40 million English default judgment against VASP, with enforcement and related proceedings unresolved. The filing states management did not expect these matters to materially affect consolidated results, but outcomes are uncertain.
- Other outlook items: Management expects to fund aircraft growth through operating cash flows, committed facilities, bank debt and capital-market financing, and believes liquidity sources will meet contractual obligations. No specific earnings or revenue guidance is provided. The filing says the company did not intend to pay regular dividends in the foreseeable future. A proposed lease-accounting standard could materially affect financial-statement presentation, but its effect was not yet assessable.
Important facts for investors to verify
- Reconcile the adjusted net income and net-spread definitions and exclusions to GAAP results; these are non-GAAP measures.
- Check the availability and permitted uses of the reported $800 million in undrawn facilities, and funding plans for aircraft commitments and maturities.
- Monitor lease renewals, utilization, default-related costs and the accuracy of the filing’s differing lease-expiration totals.
- Assess ALS transaction cash receipts and the recoverability and timing of its contingent note receivable against the related coupon liability.
- Track developments and potential exposure in the VASP and Transbrasil matters, notwithstanding management’s no-provision position.
- Review aircraft valuation and impairment assumptions, floating-rate debt and hedge effectiveness, and any subsequent changes in the company’s PFIC tax status.